Emperical Testing of bPrice Elasticity of Demand

7/28/2019 Emperical Testing of bPrice Elasticity of Demand

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EMPERICAL TESTING OF PRICE ELASTICITY OF

DEMAND

for

NESCAFE ORIGINAL COFFEE

By

SAMIA SHAMSI

(09109003)

SUBMITTED TO

MR. EHSAAN ULLAH

GIFT UNIVERSITY

SCHOOL OF BUISSINESS SCHOOLSubmitted in Partial Fulfillment of the

Requirement of the Degree of

Masters of Business Science

2009

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I WANT TO DEDICATE MY PROJECT TO MY PARAENTS

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Acknowledgement

I want to thank ALLAH first of all who gave me the ability to perform this task and after

that I would like to thank my teacher Mr. Ehsaan ullah who have told me how to manage

my project as teacher he has fulfilled his task then I would like to thank my elder sister

as she is my helping hand and without her I could not be able to do this project after that

my friends they all helped me a lot in doing and completing this project because I have

done such kind of work first time in my life so they were proved to be very helpful for

me in managing and organizing this project.

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FORWARD

My project is about Nescafe original coffee. I have made a survey in the market about the

demand of the Nescafe original coffee. And from that survey I have gathered some

qualitative and quantitative data that how the demand of people changes when there is a

change in the price of coffee or may be in the prices of substitutes and complementary

goods of coffee. Here in this survey I have also focused the change in demand of coffee

when there is a change occur in the other factors like weather income etc so as I have

collected too many views I am going to change these raw views in to a shape of real

calculation that what is the market demand of Nescafe original coffee now a days and

which factors effects its demand the most at which percentage.

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CHAPTER#1

INTRODUCTION

1.1 LAW OF DEMANDS:

All else equal, consumers buy more of a good during a given period the lower its

opportunity cost (relative price) and vice versa.

Edition: 5th

Writer: Ralph t. byrns and Gerald w. stone

Chapter # 3: Demand and Supply

Page#58

Publisher: Addison Wesley

1.2 PRICE ELASTICITY OF DEMAND:

The price elasticity of demand (sometimes simply called price elasticity) measures how

much the quantity demanded of a good changes when its price changes. The precise

definition of price elasticity is the percentage change in quantity demanded divided by

the percentage change in price.

Writer: samuelson, nordhaus

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Chapter #4: Application of Supply and Demand

Page#66

Publisher: ..

1.3 DEMAND CURVE:

The demand curve represents the maximum price that an individual will pay for the

various quantities of a good the individual will

Happily pay

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Writer: David c. colander

Chapter#2: Supply and Demand

Page#39

1.4 INCOME ELASTICITY OF DEMAND:

Income elasticity of demand shows the degree of responsiveness of quantity demanded of

goods to a change is the income of the consumers. To put it more precisely, the income

elasticity of demand is defined as the ratio orproportionate change in the purchase of a

goods to the proportionate change in income.

Writer: Dr. M.M. parsad

Chapter#4: elasticity of demand

Page#56

Publishers: Educational publishers.

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1.5DEMAND:

A schedule of how much of a good or service people will purchase at any price during a

specified time period other things remain constant.Writer: roger Leroy miller

Page 46

Chapter#3: demand and supply

Publisher: Addison Wesley.

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1.6MARKET DEMAND:

Market demand which represents the sum of total of all the individual demands .The

market demand curve is found by adding together the quantities demanded by all

individuals at each price.

Edition: 15th

Writer: William nordhaus Paul a. samuelson

Publisher: McGraw hill. Inc

1.7SHIFT OF DEMAND:

If the prices of goods remain constant but some other influences on buyers plan changes,

there is a change in demand for that good.

Chapter#4: Demand and Supply

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Edition: 5th

Writer: Michael parkin

Publisher: Addison Wesley publishing company

Page#67

1.8 INCOME ELASTICITY OF DEMAND:

In economics, the income elasticity of demand measures the responsiveness of the

demand of a good to the change in the income of the people demanding the good. It is

calculated as the ratio of the percent change in demand to the percent change in income

Reference: Wikipedia the free encyclopedia

URL: http://en.wikipedia.org/wiki/Income_elasticity_of_demand_(YED)

x
http://en.wikipedia.org/wiki/File:Income_elasticity_of_demand_-_inferior_goods.svg


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1.9TOTAL REVENUE TEST:

Total Revenue Test is a means for determining whether demand is elastic or inelastic. If

an increase in price causes an increase in total revenue, then demand can be said to beinelastic, since the increase in price does not have a large impact on quantity demanded.

If an increase in price causes a decrease in total revenue, then demand can be said to be

elastic, since the increase in price has a large impact on quantity demanded.

Reference: Wikipedia the free encyclopedia.

URL: http://en.wikipedia.org/wiki/Total_revenue_test

1.10 QUANTITY DEMANDED:

A term used in economics to describe the total amount of goods or services that are

demanded at any given point in time. The quantity demanded depends on the price of a

good or service in the marketplace, regardless of whether that market is in equilibrium.

The quantity demanded is determined at any given point along a demand curve in a price

vs. quantity plane.

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Reference: Investopedia

URL: http://www.investopedia.com/terms/q/quantitydemanded.asp

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CHAPTER#2

RESEARCH METHEDOLOGY

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CHAPTER#3

ANALYSIS

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1

1.Primary reason for using

coffee

taste 75%

customer

service 25%

2. Do you use

substitutes

yes 60%

no 40%


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xv

3. People say that they

want to change the price of

Nescafe coffee

yes 65%

no 35%

4. People take coffee

in a day

1 time 65%

2times 30%

3times 5%

5. Time period since

people are using

Nescafe coffee

1year or more 50%

5years or more more 35%

10 years or more 15%


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6. Satisfaction of people

from Nescafe coffee

satisfied 80%

not satisfied 20%

7. As compared to other

products

Nescafe coffee ismuch

better 70%

same

30

%


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8. People

purchase

tin pack 35%

bottle 50%

sachet 15%

9. When complimentary

goods price changes the

effect on the demand of

coffe of people is:

demand

decreases 30%

demand remains

the same 70%


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10. Availability of coffee

in the market is:

easily

available 80%

not easily

available 20%

11. In which season people

use coffee most

winter 70%

summer 15%

rainy 15%


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12. People satisfied with the

services of company

agree 75%

neutral 25%

Disagree 0%

13. People use

sustitutes of coffee:

coffee of other

brands 90%

black

coffee 10%

4 people expect that

rices should be low

es 55%

o 25%

may be 30%


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15. How did people

firstly discover

Nescafe coffee

Advertisem

ent 60%

friends told

them 40%

6. People want to replace Nescafe

offee in future

es 80%

o 20%


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7. People think that the

aste of Nescafe coffee

an become better than

et:

es 65%

o 35%

18. People says that

Nescafe coffee is the best

available coffee in the

market:

yes

90

%

no

10

%


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e

QuantityDemanded

5 105

0 90

0 75

0 60

a

1

)7(355)

9

a

1

3

5

a

1

3

8

a

1

4

1

Price

Quantityde

manded


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NAME .. PROFESSION

Tick marks the best answer. Following is the survey of Nescafe original

coffee that what effect can be caused if the following situation will be

faced by the customers of Nescafe coffee:

Q#1: What is the primary reason of using Nescafe original coffee?

a) Price

b) Taste

c) Customer service

d) Other (give reason)

Q#2: Do you use substitutes of coffee like?

a) Cold coffee

b) Black coffee

c) Tea

d) Dont use substitutes

Q#3: What will you do if the prices of Nescafe original coffee will increases from

Rs.355 to Rs. 380?

a) Your demand will remain the same

b) Your demand will increase

c) Your demand will decrease.

Price demand

355 ..

380 ..

Q#4: If you could change something about Nescafe original coffee what would it be?

a) Its taste

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b) Its price

c) Other thing (give reason)

Q#5: How did you first discover Nescafe original coffee was available for purchase?

a) Advertising TV, newspaper, magazine, radio

b) Friends/Family/Someone told me about It

c) Saw it in the store/Browsing in store

Q#6: How many times in a day you take coffee?

a) 1 time

b) 2 times

c) 3 times

Q#7: How long have you been using Nescafe coffee?

a) 1 year or more.

b) 5 years or more.

c) 10 years or more.

Q#8: How satisfied are you with Nescafe coffee?

a) Just satisfied

b) Unsatisfied

c) Very unsatisfied

d) Extremely satisfied.

Q#9: Compared to other [PRODUCT CATEGORY] that are available, would you

say that Nescafe coffee is:

a) Much better

b) Same

c) Worse

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Q#10: What would you like to tell [COMPANY] about your satisfaction with the

Nescafe coffee?

Q#11: What would you purchase for fulfilling the requirement of coffee?

a) Tin pack.

b) Bottle.

c) Sachet.

Q#12: What will you do if the prices of the substitutes of coffee will fall?

a) Your demand for coffee will increase.

b) Demand for coffee will increase.

c) Demand for coffee will remain same.

Price demand

350

345

340

330

Q#13: What will you do if the milk price will increase?

a) Your demand for coffee will increase.

b) Your demand for coffee will decrease.

c) Your demand for coffee will remain the same.

Q#14: If you are not satisfied with Nescafe coffee tell the reason briefly:

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Q#15: Do you think that Nescafe original coffee is easily available in the market?

a) Always available

b) Sometime available

c) Sometime not available

d) Always not available

Q#16: In which season you use coffee most?

a) Winter season

b) Summer season

c) Rainy season

Q#17: Consider the total package of Nescafe coffee including customer service,

features and benefits, and cost. How satisfied are you with the product?

a) Agree

b) Disagree

c) Neutral

Q#18: If the (Company Product) were no longer available, what would you replace

it with?

Q#19: All things remains the same, over the next 12 months how likely are you to

replace Nescafe coffee?

a) High chances

b) Low chances

c) Certain

d) Not sure

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Q#20: Do you think there should be a change in price?

a) Yes

b) No

c) Doesnt effect

THANKS FOR YOUR CO-OPERATION

Emperical Testing of bPrice Elasticity of Demand

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